How to Compensate Teams

One of the hottest topics in compensation right now is how to compensate teams effectively.

More and more agents are forming teams. The National Association of Realtors is starting to devote resources to educating agents about how to form teams. Once NAR has endorsed a trend, there's no point fighting it – you have to embrace it and figure out how to make it work for you.

The problem with teams, from the broker's perspective, is that when agents combine their revenue, they reach a higher split faster. The company dollar drops, but expenses stay the same.

The solution is to offer separate commission schedules for teams, and design those schedules to recover the costs associated with supporting each agent: office space, administrative expense, managerial support, utilities, etc.

Some brokers are afraid of losing market share if they don't keep teams on the same commission schedule as individual agents. They are willing to give up company dollar for the sake of keeping the peace. But that puts the long-term profitability and stability of the company at risk.

The way to get a more positive response from agents is to provide support to those agents who want to form teams, helping them structure the teams more effectively. This kind of support can be highly valued; most agents don't know how to design team compensation effectively.

What tends to happen is that one of your top agents, who is currently receiving 80%, will talk to an agent who might be getting 50%. She'll offer him 70% of what she gets if he joins her team. That's a good deal for him, as 70% of 80% is 56%. He's now getting an extra 6% on every deal he closes.

She keeps 24% of what he makes. That's good, but it may not be enough to compensate her for the overhead and additional expenses she carries for him, plus the loss of the time it takes to manage him. She may end up making less than she was before – and adding management headaches.

The company loses too, as it now keeps 20% of the revenue for the lower-producing agent instead of 50% – a loss of more than half its margin!

So in this example, the person who benefits the most is the under-productive agent, who was only at the 50% level. That's just not satisfactory.

You can get better results working with agents who want to build teams, providing advice and helping them formulate solid business plans. This support can be part of your total package for teams, which would also include a separate commission structure.

When you take this approach, you'll have more productive teams, happier primary agents, and you'll be able to keep your margins where you need them.